Independent Record Companies in the Digital Era

This thesis is written on the topic of what the influence of the digitalization is (or may be) on the recording industry and on the independent record companies, and how this influence is dealt with by these parties. In the recording industry four very large record companies take account for approximately 80% of the annual recording sales. These companies are often referred to as the majors. The independent record companies can be seen as those record companies which are not owned by the majors. On average they share some distinct characteristics (as the majors do as well) such as: being relatively small record companies, being relatively flexible and flat organizations, having a fairly personal relation with their artists, having relatively little economic power, the ability to make profit with relatively small sales volumes etc. There is and has been quite a fuzz about the music industry in general and the recording industry in particular in context with the digitalization. A main reason for this is the existence of large scale music piracy (implying both physical and digital piracy). In this context especially Internet piracy, which exploded round about the start of the third millennium, proves to a core issue. As recordings are massively copied and distributed without permission and compensation of the relevant copyright holders the record companies state that their intellectual property rights are being violated, something which can be interpreted as a serious threat because the possibility to commercially exploit copyrights is an absolute crucial condition for the existence of these companies. Moreover, the recording industry in general claims that the heavy and sudden decrease in recording sales this industry had to cope with (which set in round about the same period as the Internet piracy increased rapidly) for a large part is the result of music piracy. This claim has been criticized heavily. The main alleged other reasons for the decline in recording sales are: a worldwide fall of consumer expenditure, the consumer’s disinterest in the majors’ formulaic output, the coming to an end of catalogue replacement sales and a changed consumption pattern of the youth. Even though a part of these alleged causes seems to be viable, music piracy and particularly Internet piracy is most likely to be an important cause for the discussed decline. But the digitalization has offered the record companies some distinct opportunities as well. Digital distribution enables these companies to distribute their content without the necessity of physical transportation, implying that in such a case the manufacturing and storage of a physical product also is no longer necessary. In addition, digital distribution implies the possibility to (in more or less extend) shorten the traditional value chain of a recording. What here has been expounded has the potential to bring about clear cost advantages. Other opportunities for record companies brought about by the digitalization predominantly may manifest themselves in the areas of production and marketing/promotion. The mutual compatible and highly popular digital technologies that together made both the threats and possibilities the record companies are confronted with possible (and which therefore have had a major impact on the recording industry in general) are the Internet, digital copying technology and digital compression technology. In cohesion with the topic of research, the following central research question has been formulated: What is the influence of the digitalization on independent record companies and how do these companies deal with this influence? Some important results of the conducted research are: - Most of the independents that participated in the research have experienced a decrease in recording sales since round about the millennium. - Because the participating independents’ recording sales have been decreasing they are much more careful with respect to investments in new productions and the signing of new artists. It is sought to estimate the break-even point at a relatively low number of units sold. In addition, there appears to be a trend among the independents to seek income out of sources such as publishing, live performing of their artists, merchandise and artist management activities. - The genre an independent record company specialises in appears to play a decisive role in context with the amount of harm that is perceived because of unauthorized downloading. The participants that felt to have a ‘music lover’ as main consumer did not think that their recording sales have decreased because of unauthorized downloading. This consumer, they reckon, prefers to own the authentic physical recording. - The participating independents predominantly saw digital distribution as an efficient and effective way to distribute their content worldwide. Furthermore it was thought that clear cost advantages can be achieved by doing so. But to the contrary, most of the independents sold very little products in the digital format. It appears to be the case that their consumer values hard copies over soft copies. Foregoing seems to be connected with the niche markets they focus on.